Bond investors may be starting to demand a premium on government debt, given the record stimulus plans in the US. Inflation expectations have been leading bond yields higher, but real yields are now turning up. The move higher since the start of the year will be putting pressure on the reverse earnings gap.
Lofty valuations for some technology companies will come under greater scrutiny if the rise in real yields continues. Indeed, pricing battles will be played out in a range of sectors linked to new technologies, including 5G and renewables.
The EV market may also be a harbinger of a ‘deflationary squeeze’. China is the largest EV market globally and a test bed for price competition in autos. The race ahead for Tesla is littered with risks. Price competition is fierce in China and the number of EV manufacturers is growing.
